A British TV watershed was breached Monday with the long-expected announcement that cabler NTL will acquire rival Telewest for $6 billion in a mix of cash and shares.
The tie-up sees the emergence of another big player in Blighty’s hyper-competitive digital TV landscape as the unnamed entity preps to battle satcaster BSkyB and digital terrestrial platform Freeview, a joint venture of the BBC, BSkyB and Crown Castle Intl.
NTL chief exec Simon Duffy becomes CEO of the new group, which will have a market capitalization of about $5.6 billion, making it the second biggest communications combo in the U.K. after British Telecommunications.
Telewest helmer Barry Elson will ankle once the merger is complete, expected to be first quarter 2006.
Duffy hailed the partnership as a turning point in the troubled cable industry, where more than 100 companies have dwindled to just three — NTL-Telewest and two regional operators — amid huge debt, financial restructuring and brutal competition from Rupert Murdoch’s dominant BSkyB.
“Today is a momentous day in the development of U.K. cable,” he said. “After more than a decade of consolidation, it really does signify the creation of a new competitive force in the creative and entertainment sectors in the U.K.
“We’re bringing together a range of businesses that should never have been separate in the first place.”
The new entity, which will take on $10.26 billion in debt, will have 3.3 million pay TV subscribers compared with BSkyB’s 7.8 million and Freeview’s 5 million.
It also will have 2.5 million broadband subs and 4.3 million phone customers.
Crucially, it looks as if the new combo will hang on to content arm Flextech, whose portfolio of channels includes Living, Bravo and joint ownership of the U.K. TV group of channels with BBC Worldwide.
“When we went to Telewest, we made it clear that strategic control of Flextech was a key part of the deal,” Duffy said.
While it’s too early to say what the new entity will do with Flextech, Duffy added, shedding it is unlikely. “We regard it as a key asset. Auctioning it off to the highest bidder is not the obvious thing to do,” he said.
This will infuriate BSkyB, Pan-European media giant RTL and Blighty’s commercial web ITV, all of which are interested in buying Flextech.
This final consolidation of the U.K. cable sector will lead to economies of scale as the two entities pool resources on developments like video-on-demand, smart video recorders and high-definition.
But it remains to be seen if cable can catch, let alone outgun, BSkyB with its triple play of TV, broadband and phone services.
To add to the competition, the BBC and ITV plan to roll out their own Freesat digital satellite service next year.
Cash-rich BSkyB is pioneering smart video and high-definition technology in the U.K.
It is unclear how many jobs will be lost in the merger. NTL employs about 10,000 workers while Telewest has 8,400 employees.
NTL and Telewest are both listed on the New York Stock Exchange. The new entity is likely to seek London stock exchange listing, but for tax reasons it probably would be a secondary listing, with the company remaining domiciled in the U.S.